Return of Premium on Long-Term Care Insurance Policies

Return of Premium on Long-Term Care Insurance Policies

There are three incarnations of Return of Premium, and each company selling Long-Term Care Insurance coverage will offer at least one:

Full Return of Premium

1) Return of Premium, often referred to as “full return of premium,” will give your beneficiary a death benefit equal to the sum of your LTC premiums paid over time.  This is available with several carriers, including Mutual of Omaha, and is the most expensive option you can buy of the three Return of Premium options.
Example: In our example case, the premiums for a standard 3/150 for a “Standard” rated 59-year-old were $2,441 and adding the full “Return of Premium” rider made them $7,789.  WOW!

Return of Premium Less Claims

2) Return of Premium less claims: the sum of your LTC premiums paid are returned less any claims paid.  So if you paid in $25,000 but used $15,000 in claims dollars before dying, your beneficiary would receive back $10,000 in premiums.  More liekly, you either don’t use the policy and they get everything back, or you use it and use significnatly more than you paid, meaning they get nothing back.  The biggest risk with this option is that you pay more for it for many years and then use your benefits to their fullest extent, meaning you paid extra for this but don’t benefit from that extra cost at all.
Example Cost: The $7,789 referenced above drops to $6,665 if we drop it to “return of premium less claims.”
Again, the problem with this is that if you make a claim, you’ll likely have paid extra for this option for many years to no avail, because you’ll quickly surpass your payments over the lifetime when on a claim.

Graded Return of Premium

3) Graded return of premium: the least expensive option available, Graded policies are offered by some like Genworth Financial, and a similar incarnation is available with Mutual of Omaha.  With these, which are nominal in cost, your Return of Premium benefit goes away with time.  With Genworth’s option, you’ll get a percentage of it back up to age 75, when it drops to zero.
To add this option to your Mutual of Omaha policy is only $37 per year, but after age 65 your benefit goes away and you wouldn’t have return of premium benefits.

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